nep-cna New Economics Papers
on China
Issue of 2020‒11‒09
seven papers chosen by
Zheng Fang
Ohio State University

  1. Moving Out of China? Evidence from Japanese Multinational Firms By Changyuan LUO; Chunxiao SI; ZHANG Hongyong
  2. CAREER TRAJECTORIES OF REGIONAL OFFICIALS: RUSSIA AND CHINA BEFORE AND AFTER 2012 By Thomas F. Remington; Andrei A. Yakovlev; Elena Ovchinnikova; Alexander Chasovsky
  3. Interest Rate Pegging, Fluctuations, and Fiscal Policy in China By Bing Tong; Guang Yang
  4. Input-Output Networks and Misallocation By Jing Hang; Pravin Krishna; Heiwai Tang
  5. How Has China’s Economy Performed under the COVID-19 Shock? By Hunter L. Clark; Jeffrey B. Dawson; Maxim L. Pinkovskiy
  6. The Effects of Financial Decoupling of the U.S. and China: Simulations with a Global Financial CGE Model By P.B. Dixon; J.A. Giesecke; J. Nassios; ; M.T. Rimmer
  7. Income inequality and happiness: perceived or actual, widely or narrowly defined, fair or unfair, self- or community-centred inequality? By John Knight; Ramani Gunatilaka

  1. By: Changyuan LUO; Chunxiao SI; ZHANG Hongyong
    Abstract: Against the background of the decline in foreign direct investment in China and the rest of the world, this study examines the firm-level and macroeconomic factors that affect foreign divestment in China. It employs a unique dataset of Japanese multinational enterprises (MNEs) from 1995 to 2016 and survival analysis. Foreign divestment involves a dissolution or withdrawal and a reduction in control share. The study resulted in the following findings. First, affiliate firm size, Japanese capital share, profitability, labor productivity, and export proportion to Japan are all negatively associated with divestment. The probability of divestment increases with the size of the parent firm and experience in the Chinese market but decrease with business relatedness between affiliate and parent firms, entry threshold, and market concentration. Second, an affiliate's firm size and profitability as well as market competition are the main determinants of a dissolution or withdrawal (more extreme methods of divestment). Meanwhile, an affiliate's capital structure and productivity are the main determinants of a reduction in control share (a relatively moderate method of divestment). Third, larger parent firms are likely to make spatial adjustments in their production across regions in China and to adjust their activities from manufacturing to services. We also examine the heterogeneous effects of foreign divestment by region, industry, and period. Based on this study, China would benefit from monitoring and reacting to the dynamic trend of foreign capital withdrawal and creating a favorable business environment for MNEs.
    Date: 2020–10
  2. By: Thomas F. Remington (National Research University Higher School of Economics); Andrei A. Yakovlev (National Research University Higher School of Economics); Elena Ovchinnikova (National Research University Higher School of Economics); Alexander Chasovsky (National Research University Higher School of Economics)
    Abstract: Authoritarian leaders rely on regional officials for both political support and the fulfillment of their policy objectives. Central leaders face trade-offs between using institutionalized rules for choosing regional officials such as regular rotation and performance incentives, and building a stable base of personal support from loyalists. This paper analyzes appointments of regional officials in Russia and China before and after 2012. We hypothesize that, as a consequence of the centralization and personalization of state power in both regimes over the past decade, Russia’s system for appointing regional officials has become somewhat more regularized while in China under Xi it has become somewhat less regularized. Our analysis uses a comprehensive original set of biographical data on all top regional officials from 2002 through 2019 in China and from 2000 through 2019 in Russia. We discern clear differences between the pre- and post-2012 period for China and less marked differences for pre- and post-2012 Russia
    Keywords: bureaucracy under authoritarian government; regional officials; career mobility; Russia; China
    JEL: P21 H83 P27
    Date: 2020
  3. By: Bing Tong (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Guang Yang (School of Economics, Nankai University)
    Abstract: This paper proves in a New Keynesian model that interest rate pegging can explain the unusual business cycle fluctuations in China. It is traditional wisdom that when the nominal interest rate is inflexible, there is no unique equilibrium in macroeconomic models. We prove that a unique equilibrium exists if the nominal rate is pegged for a limited period, after which it switches to a flexible rate regime. The peg alters the propagation of external shocks, magnifies volatility of endogenous variables, and leads to instability of the economy. Besides, the model becomes more unstable when the peg duration extends, and when the pegged rate deviates from steady state. At the same time, fiscal multiplier increases under the peg, indicating fiscal policy may be more effective in mitigating economic fluctuations when monetary policy is restricted by interest rate pegging.
    Keywords: New Keynesian model, Chinese economy, Interest rate peg, Fiscal policy, Rational expectation
    JEL: E31 E32 E43 E62
    Date: 2020–05
  4. By: Jing Hang; Pravin Krishna; Heiwai Tang
    Abstract: This paper develops a framework for studying the macroeconomic costs of resource misallocation. The framework enables the assessment of the conditions under which the existing estimates in the misallocation literature, which are largely based on a value-added production structure and ignore inter-sectoral linkages, provide an unbiased estimate of misallocation costs in relation to a more general setting, in which production of gross output relies upon input-output linkages across sectors. We show that in the absence of intermediate input distortions, the two approaches are isomorphic and will yield the same estimated aggregate productivity loss. When firm-specific intermediate input distortions are present, however, the value-added model produces biased estimates of TFP losses due to both model misspecification and incorrect inferences of firms' productivity and distortions. Using Chinese and Indian enterprise data, we find quantitatively similar TFP losses from resource misallocation for China, regardless of the model used, while for India, we infer significantly larger TFP losses under the gross output model.
    JEL: E1 E23 L16 O11 O4
    Date: 2020–10
  5. By: Hunter L. Clark; Jeffrey B. Dawson; Maxim L. Pinkovskiy
    Abstract: China’s economy was the first to be hit by the COVID-19 outbreak, the first to be locked down, and the first to begin an economic recovery. We examine the impact of the COVID-19 crisis on China’s GDP growth using a set of alternative growth indicators. Our analysis finds that China’s official GDP growth figures over the first three quarters of this year have been broadly in line with alternative indicators and that growth presently is staging a strong rebound and providing a boost to the global economy. However, this rebound faces potential headwinds in the forms of high levels of debt, declining return to capital accumulation, and a shrinking working-age population in China.
    Keywords: China; COVID-19
    JEL: E2 F00
    Date: 2020–10–23
  6. By: P.B. Dixon; J.A. Giesecke; J. Nassios; ; M.T. Rimmer
    Abstract: We add a financial module to the GTAP model, built around an 18-region asset-liability matrix. We simulate financial decoupling between the U.S. and China. We find that the U.S. would gain by limiting its capital flows to China, leading to a redirection of finance to the domestic economy. This would stimulate investment in the U.S. with favorable effects on employment, capital stocks, real GDP, wealth and real wage rates. At the same time investment in China would decline with negative effects on the Chinese economy. Similarly, China would gain by limiting its capital flows to the U.S. and the U.S. would lose. In a tit-for-tat situation in which each country reduces it financial-asset holding in the other country by x per cent, the winner would be China. We conduct additional simulations to compare the effects of trade decoupling with those of financial decoupling.
    Keywords: Financial decoupling U S -China economic relations Trade decoupling Financial module in GTAP CGE simulations
    JEL: C68 F17 F37 F51
    Date: 2020–10
  7. By: John Knight; Ramani Gunatilaka
    Abstract: The effect of inequality on happiness should intrigue social scientists. Of the many dimensions of income inequality, we explore four, analysing a rich data set for China. Does actual or perceived inequality have a greater effect on happiness? We find that perceptions of inequality are the more important. How broad is the reference group with which people compare themselves? They report that it is narrow; and indeed narrowly defined inequality has the greater effect on happiness. Do perceptions of the degree of fairness of inequality matter? The degree of perceived fairness is found to ameliorate the adverse effect of inequality on happiness. Is it self-centred or community-centred inequality which affects happiness? Both measures of inequality have significant effects, but in opposite directions. The research and policy implications are discussed.
    Keywords: China; Happiness; Inequality; Reference group
    JEL: D03 D63 Z13
    Date: 2020–10–26

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